A huge gap up opening on Friday with all indices across the NSE and BSE in the green reflected the global thumbs up given to the announcement of the Euro zone leaders.

The NSE closed at 5360.7, up 3.05 per cent (158.9 points), while the BSE was up 2.98 per cent (515.97 points) and closed at 17804.8. Volatility was down 7.93 per cent with India VIX closing at 20.89.

FIIs bought Rs 2166.21 crore worth equity in the net while domestic institutions sold Rs 1078.41 crore worth equity. Retail investors on the BSE were net sellers of Rs 196.87 crore worth equity.

Experts attributed the huge increase to three reasons: The markets had remained closed partially on Wednesday and fully on Thursday and this was their style of catching up with global events.

Next was the positive news from the US whose GDP growth numbers of 2.5 per cent were in line with expectations. Finally, the resolve shown by the EU leaders to find a solution to the Euro zone debt crisis buoyed markets worldwide.

The Sensex price to earning (PE) ratio has climbed to 18.96. Higher PE ratio generally indicates that investors are paying more or the valuation is expensive.

“Nothing much has changed and there has been an over-reaction to the news flow,” said Mr Prakash Diwan, Head- Institutional Client group, Asit C Mehta Investment Intermediaries.

“The celebrations seem to have begun even before actual solution to the debt crisis has been implemented.”

Analysts were of the view that the market was desperate for a positive trigger and latched on to it. The rally, however, does not reflect the fundamentals of the companies and hence such levels would not be tenable, they said.

Hindalco, DLF, JP Associates, Reliance Infra and Sterlite were the top five gainers on the Nifty while BPCL, Maruti, GAIL, Bharti Airtel and Sesa Goa were the top Nifty losers.

Euro zone shaky

Leaders of the Euro zone had announced on Thursday that Greek bonds would be re-valued at half their price and banks facing liquidity issues would be recapitalised and put to stringent capital adequacy norms henceforth.

“It remains to be seen whether the promise of austerity made by Euro zone is actually implemented within the timeline of June 2012,” said a dealer from a local brokerage.

“There are risks of a contagion looming large especially if this spills over to other debt-ridden countries of the Euro zone namely, Portugal, Ireland, Italy and Spain who along with Greece are called PIIGS.”

However, Europe and the US markets did not carry forward the gains made on Thursday.

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